What Is a Digital Wallet?
5 Min Read | Last updated: May 20, 2026
This article contains general information and is not intended to provide information that is specific to American Express products and services. Similar products and services offered by different companies will have different features and you should always read about product details before acquiring any financial product.
Learn how digital wallets work and why they’re a convenient way to make purchases using your phone. Explore their benefits and features.
At-A-Glance
- Digital wallets are becoming tremendously popular and offer a great deal of convenience.
- Digital wallets allow you to make payments or transfer funds electronically, using your phone or another mobile device.
- By using a digital wallet, you can enjoy security, convenience, and efficiency when you need to purchase something or pay someone.
Digital wallets will continue to surge in popularity in the coming years, and for good reason.1 Advancements in technology, combined with the fact that digital wallets offer a tremendous amount of convenience, means that many people today are using them. Digital wallets allow you to make purchases using your phone or another smart device, quickly and easily.
In this article, we’ll look at some of the benefits of using digital wallets, how they work, and if they’re a safe method for making payments.
How Do Digital Wallets Work?
Digital wallets store payment methods, like credit cards and debit cards, allowing you to make purchases or send money straight from your phone.2
With digital wallets, you don’t have to carry around a physical wallet or dig for your card every time you need to make a purchase. Instead, you can just use your phone (or another smart device), tapping it to the card reader at the checkout. You can also use some digital wallets to send money online through different apps.3
While every digital wallet is different, most of them rely on technologies like near-field communication (NFC) and magnetic secure transmission (MST).1 These technologies can transmit payment information from your phone to another device.
To get started, you can download a digital wallet app on your phone or another mobile device. Once you provide your personal information and add your payment methods, such as your credit card or bank account details, you’ll be able to use the digital wallet.
Keep in mind that some digital wallets are specifically designed to make purchases while specific apps may be better for sending money.2 Also, some digital wallets may only be available on certain devices. Compared to other payment methods, like cash and even cards, digital wallets are very convenient.
Here’s an overview of some noteworthy benefits of digital wallets:
Convenience: With a digital wallet, you can access your funds easily, as long as you have a smartphone or mobile device. You’ll be able to make purchases or send funds at the tap of a button.
Security: A digital wallet can be ideal if you’re looking for a safe way to store your confidential payment information. Some digital wallets use encryption, multi-factor authentication, and other safety measures for your peace of mind.2,3
Expenses Tracking: If you’d like greater control of your money, you’ll appreciate the fact that a digital wallet can help you keep tabs on your expenses. You can check it any time to see which merchants and individuals you’ve paid and when.
Environmentally Friendly: Digital wallets are also environmentally friendly as they reduce the need for physical receipts and bills.
Globally Accessible: If you travel abroad frequently for business or pleasure, you may find a digital wallet that’s accepted in other countries. It’s a universal solution that may simplify your travels.
Are Digital Wallets Safe?
If you’re considering a digital wallet or already use one, you may be wondering how safe it is. Fortunately, many digital wallets today are equipped with modern safety features that can help reduce the risk of theft and fraudulent charges. These safety features may include encryption or tokens that are used to process payments while keeping your payment information confidential.3 Some digital wallets also include multi-factor and biometric authentication.3 Of course, to help ensure optimal safety while using them, it’s up to you to set strong passwords and use secure networks.2,3
Frequently Asked Questions
Digital wallets are still not as widely accepted as traditional payment methods, like cash, debit cards, and credit cards. 3
Digital wallets can store your payment information, which may come from credit cards, debit cards, or your bank account. They can also hold identification cards, gift cards, loyalty cards, boarding passes, concert tickets, and more.3
Similar to credit cards, some digital wallets may have transaction limits. Before you use a digital wallet, it’s important to know whether it has a transaction limit.
The Takeaway
Also known as electronic wallets or e-wallets, digital wallets are payment applications that allow you to make purchases or send money from your phone. They’re a convenient solution and becoming more prevalent each year.
1 “Big Tech's Role in Contactless Payments: Analysis of Mobile Device Operating Systems and Tap-to-Pay Practices,” Consumer Financial Protection Bureau
2 “What’s in Your Wallet? Tips for Keeping Digital Assets Safe - DFPI,” State of California Department of Financial Protection and Innovations
3 “What Is a Digital Wallet?,” Experian
Anna Baluch is a personal finance writer from Cleveland, OH. She enjoys helping people from all walks of life make smart financial decisions. Her work can be seen on Credit Karma, Forbes, LendingTree, Insurify, and many other publications. Connect with Anna on LinkedIn.
All Credit Intel content is written by freelance authors and commissioned and paid for by American Express.
Related Articles
What is a Contactless Credit Card?
It looks like a sideways Wi-Fi icon, but what is the contactless symbol on a card, and what makes contactless credit cards so secure? Find out today.
How to Report Credit Card Fraud
Learn how to report credit card fraud. See steps you can take to protect your finances and important things to consider when reporting credit card fraud.
Send & Split®: How It Works
Did you know American Express Card Members can send money or split purchases with other Venmo or PayPal users right from the American Express® App? Here’s how it works.
The material made available for you on this website, Credit Intel, is for informational purposes only and intended for U.S. residents and is not intended to provide legal, tax or financial advice. If you have questions, please consult your own professional legal, tax and financial advisors.
